U.S. Hospitals Feeling The Squeeze

Rebecca Ruiz
, ContributorI look at research and policies that affect our soldiers.Opinions expressed by Forbes Contributors are their own.

From David Seaman's point of view, the recession couldn't be more brutal for the hospital industry. As executive vice president of the Michigan Health and Hospital Association, a membership organization representing the state's community hospitals, he's watched closely as revenue has plummeted; cash-strapped patients are skipping visits and under-compensated cases are increasing.

As a result, a pattern of cost-cutting has emerged as hospitals have tried not to sacrifice quality, access and safety. As reported in the Detroit Free Press earlier this month, St. Joseph Mercy Health in Ann Arbor will cut 350 positions to make up for a projected $52 million deficit in the upcoming fiscal year. Beaumont Hospitals in Royal Oak has postponed a $159 million project to build a cancer radiation facility after having lost nearly $30 million last year.

There has also been the elimination of entire departments as well as often subsidized services like mental health. Such cuts, which can translate into longer wait times, less up-to-date technology and fewer services, are bound to affect patients.

But consumers can stay healthy if they practice preventive care and know how cost-cutting might affect their treatment.

The Perfect Storm

In Michigan, Seaman says hospitals have had to make tough choices in the face of declining revenue and increasing levels of uncompensated care. In 2008, the state's hospitals spent $879 million subsidizing services for those who couldn't pay; Seaman expects that figure to reach $1 billion in 2009.

"The reality is that Michigan is probably in a more dicey place," he says, citing the state's 14.1% unemployment rate. "But we're a microcosm of the world around us."

Indeed, a survey of more than 1,000 community hospital CEOs conducted in March by the American Hospital Association found that nine in 10 hospitals had trimmed their budgets to weather the recession.

Caroline Steinberg, vice president for trends analysis at the AHA, says revenue has dropped steeply as many Americans have delayed elective procedures. These are necessary but not emergency procedures such as a knee operation or a surgery to remove a blockage in the heart.

Steinberg also says that hospitals have seen huge investments losses, which has fundamentally changed their balance sheets, since one-third of hospital revenue comes from non-operating income. Tax revenues, which have declined steeply in the past year, have also forced some states, including Michigan, to propose cutting Medicaid payments to hospitals. This could be particularly problematic for public hospitals that rely on government subsidies to operate. To offset these losses, the stimulus package included $268 million in funding for public hospitals.

John Tiscornia, managing director of
Huron Consulting Group
, advises his public and private hospital clients to look first at stemming non-labor costs like supplies, then at maximizing payments from insurance companies, and finally at trimming staffing levels. Tiscornia is optimistic that such reductions don't have to affect quality significantly.

What Consumers Should Know

Steinberg, however, sees very real consequences for consumers. In rural areas where a hospital has just closed its obstetrics department, for example, a patient may have to drive an hour to get care. Or patients who visit the emergency department in need of mental health care--a commonly cut service during tough times--might face long waits while trying to find a facility that can assist them.

In some cases, the stakes might be much higher. In March, the Association for Professionals in Infection Control and Epidemiology surveyed nearly 2,000 of its members, 41% of whom reported that their workplaces had cut infection prevention budgets in the past 18 months. That's a troubling statistic given that hospital acquired infections can be devastating, if not deadly, for patients.

Denise Murphy, an infection control expert and vice president for quality at Main Line Health System in Bryn Mawr, Pa., says that the survey results should prompt consumers to take a more proactive role in their health care. For example, a patient might want to inquire about infection control measures when undergoing a procedure at a hospital to learn about the risks and make sure that staff is following protocol.

Steinberg also says consumers should have a heightened awareness of how the economic pressures on hospitals relates to the care they receive. The more patients know about budget cutting at local hospitals, the better they can plan for future treatment.

Consumers are also be best served, she says, when they practice preventive care (think healthy diet, regular check-ups, sticking with medication regimens) instead of letting poor self-care turn into an emergency visit to an already-stressed hospital.

"People need to start making an investment in personal health," says Seaman. "The moment you have to [get treatment] in an acute state, it's at a high cost."